How To Begin Paying Off Your Debt ( 3 Easy Steps)
Paying off your debt sounds easy enough as it is; you just send money to the companies you owe right? Well yes, you send a payment and that is essentially paying off your debt. However, what most people do not realize is that there is a better way to pay off your debt, one that is faster and automated. Let me show you 3 easy steps you can literally do in a single day and help you cut your debt without sending a payment.
A wise person should have money in their head, but not in their heart.
— Jonathan Swift
Step 1: How Much Do You Owe
This is a real nail biter even for myself. I’ll be honest with you all, my debt is pretty high. But I decided to break it all down and to identify my total debt to start paying it off ASAP. A simple way of doing this is by creating a spreadsheet with 4 columns; Name of the credit company, the total amount of debt, APR and minimum monthly payment. You can customize more if you’d like, but this is simple enough to get you started. If not you can use your personal finance application like Mint which does most of the tracking and analytics for you. But if you really want to dive deep into your finances then add your other bills so you get a full picture of your total debt.
Step 2: Negotiate Rates & Fees
I would’ve doubted someone if they told me they can lower their APR and remove fees just by asking. But I called a few of my credit lenders and most of them offered an assistance program for financial hardship, offered to lower my APR, remove fees or offered an extension. Just so you get an idea of what I was able to negotiate, and not think this is some BS talk.
I was able to:
- Remove 2 $29 fees on my checking account (returned check fee)
- Cut my APR from 18.4% to 5.9% (Had to agree to close the account though)
- Receive a 1-month extension (gives me extra money to use elsewhere)
After you are done calling all your creditors and lenders, you can now adjust your billing and debt situation in the spreadsheet you made from step 1.
Very Important:
Some creditors that offer to cut your APR as mine did, they will ask you to close your account afterward in some cases. If this happens, please make sure to perform your due diligence in verifying how this will affect your credit score. Personally I felt comfortable enough to close this account since I used it for a one-time big purchase. But if it’s an account you’ve had for years, you could potentially be losing years of good credit history.
Step 3: Automate Your Payments
Once you have selected or negotiated your credit cards rates and payments, it’s time to automate the payments. It’s likely you are already doing this, but are you doing it effectively. Most of us send the minimum because that means more money in my pocket NOW. However, by paying the minimum we pay MORE money in APR which means, in the long run, we LOSE more money. If you want to pay off your debt and build wealth, you have to be in it for the long run. Pay the maximum you can afford so that in the long run you SAVED more money and you can now have more cash flow afterward.
Best Automated Payment System:
It doesn’t matter if you get paid weekly, bi-weekly or monthly. Bottom line is you pay your bills and yourself before you spend a penny. As soon as you get paid, transfer all the amount you need for your bills to a separate checkings account. In that separate account, you can schedule your payments. You must also transfer money to your investment accounts and savings account. By automating payments to your future self, you are building wealth for the long run. This then forces you to only spend leftover guilt-free cash, allowing you to put your bills, investments, and savings as a priority. Your future self will thank you!
In Summary
By following this automated payment system, you will be on track in paying off your debt and securing your wealth at the same time. This can all be done in a single day if you applied it. I guarantee if you follow these 3 steps you will feel better about yourself knowing you are spending money guilt-free and worry-free. Personally I hated the feeling of being tight with money because I wasn’t sure if I could spend that money or not due to my debt. Now that I have everything automated I know the money in my account is good to spend.
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